How Home Affordability Is Determined
Lenders use debt-to-income (DTI) ratios to determine how much you can borrow. The most common is the 28% front-end ratio, which limits your housing payment to 28% of your gross monthly income. This ensures you can comfortably afford your mortgage while managing other expenses.
Your affordability also depends on your down payment, interest rate, loan term, and local property taxes and insurance rates. A larger down payment means a smaller loan and lower monthly payment. Lower interest rates and longer loan terms also reduce monthly costs, but you pay more total interest.
Factors That Affect Your Approval
Lenders evaluate more than just DTI. Your credit score significantly impacts the interest rate you qualify for—a higher score gets better rates. Employment history, savings, and other assets matter too. Some lenders have additional requirements, such as a minimum down payment percentage or maximum loan amount.
Property-specific factors also play a role: location, condition, and value assessments affect whether a lender approves your loan. Getting pre-approved by a lender before house hunting gives you a realistic picture of what you can afford.
How to Use This Tool
Enter your annual household income and existing monthly debts. Then input your available down payment, expected interest rate, and loan term. Add your local property tax and insurance rates. The calculator shows your maximum home price and estimated monthly payment. Try different scenarios to see how higher down payments or better interest rates affect affordability.